<p>
A Covered Call is an options strategy that involves both the underlying stock and an options contract. The trader buys (or already owns) a stock, then sells call options for the same amount of stock. The aim of the Covered Call is to profits from the option premium by selling calls written on the stock you already owned. At any time for US options or at expiration for European options, if the stock moves below the strike price, you can keep the premium and still maintain the stock position. If the price moves above the strike, the options contract will be exercised and you will have to sell the stock at the strike price but you will still keep the premium. The risk of a Covered Call also comes from the long stock position whose price could drop.
</p>
<p>
The payoff is as follows:
</p>
<div class="section-example-container">

<pre class="python">
  import numpy as np
  import matplotlib.pyplot as plt
  %pylab inline
  price = np.arange(110,230,1) # the stock price at expiration date
  strike = 160 # the strike price
  premium = 7.5 # the option premium
  # the payoff of short call position
  payoff_short_call = [min(premium, -(i - strike-premium)) for i in price]
  # the payoff of long stock postion
  payoff_long_stock = [i-strike for i in price]
  # the payoff of covered call
  payoff_covered_call = np.sum([payoff_short_call, payoff_long_stock], axis=0)
  plt.figure(figsize=(20,11))
  plt.plot(price, payoff_short_call, label = 'short call')
  plt.plot(price, payoff_long_stock, label = 'underlying stock')
  plt.plot(price, payoff_covered_call, label = 'covered call')
  plt.legend(fontsize = 20)
  plt.xlabel('Stock Price at Expiry',fontsize = 15)
  plt.ylabel('payoff',fontsize = 15)
  plt.title('Covered Call Strategy Payoff at Expiration',fontsize = 20)
  plt.grid(True)
</pre>
</div>
<img class="img-responsive" src="https://cdn.quantconnect.com/tutorials/i/Tutorial01-covered-call.png" alt="covered call strategy payoff"/>
